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DraftKings Is a Screaming Buy With 37% Upside, Says Analyst

By Eric Volkman - Apr 26, 2021 at 7:38PM

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The online sports gambling legalization wave should shower piles of money on the company.

A poster boy for the burgeoning online sports gambling industry in the U.S., DraftKings (DKNG 10.20%) is a very strong buy, according to financial services provider Needham & Company. On Monday, Needham analyst Bernie McTernan initiated coverage of DraftKings with such a recommendation, placing the stock on the company's conviction list and slapping a price target of $81 on it.

That level is nearly 37% above DraftKings' most recent closing price.

A man with a fistful of cash in a stadium.

Image source: Getty Images.

"We see [DraftKings] as a leader in the emerging North America online gambling market, a $35 billion market opportunity," McTernan wrote in his research note on the company. "Despite mixed results in [New York], we see the current regulatory environment as supportive, which should lead to a significant growth in legislation, a key reason our '22 and '23 estimates are above consensus."

Recently, more states across the U.S. have legalized some form of online sports wagering. At the moment, 11 of them permit full mobile betting. In 2022 New York will join this group, having legalized betting earlier this month; however, Governor Andrew Cuomo plans to run betting through the state's lottery operator.

Additionally, online casino gambling has been sporadically legalized, although that universe is smaller -- only six states currently allow this. While DraftKings is known for sports, its DraftKings Casino offers online versions of traditional offerings such as poker and slots.

With budgets taking brutal hits from the economic fallout of the coronavirus pandemic, states are hungry for quick and reliable new sources of tax revenue. Given that, McTernan's optimistic view of DraftKings' prospects seems entirely realistic.

Perhaps that's why DraftKings beat the S&P 500 index Monday, rising 1.9% against the more or less flat performance of the benchmark stock indicator.

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